Britains property market has proved to be a cornerstone of economic activity for decades. Without buyers and sellers alike booking removal lorries and moving home, large parts of the economy can lose momentum and drag on growth.
The decision to allow property viewings as part of an easing of the lockdown was seen by ministers as a much-needed boost to commercial life. Over the coming months retailers and wholesalers that supply kitchens, carpets and light fittings will join the army of previously furloughed estate agents in getting a boost.
Howard Archer, chief economic adviser to forecasting group the EY Item Club, describes the move as “relief for the housing market” that “should allow activity to progressively pick up” over the coming months.
A better outcome – one that leads to a stronger rebound – is unlikely, he says. The anxiety surrounding the path of the coronavirus pandemic, and the prospect of thousands of businesses going bust and millions of people becoming unemployed, will keep a lid on the recovery.
“Some people have already lost their jobs, despite the supportive government measures, while others may be worried that they could still end up losing their job once the furlough scheme ends,” he says. “Additionally, many incomes have been negatively affected. Consumer confidence is currently at or near record low levels on many measures, and many people are likely to remain cautious for some time to come with regards to making major spending decisions such as buying or moving house.”
Archer is one of the more optimistic analysts of the property market, expecting a fall in prices of just 5% over the next few months and a flattening-out by the end of the year. The average house price in the UK was ÂŁ230,000 in February, down 0.3% on the previous month, according to the Office for National Statistics. There are much less modest declines to come, say experts.
The Centre for Economics and Business Research predicts that prices in 2020 will be down 13% “as a lack of transactions, high uncertainty and falling incomes take their toll”.
In the first weeks of the pandemic, property agency Knight Frank said it anticipated a fall of 3% in 2020 before increasing this forecast to 7% last week. Its analysis suggested prices had fallen 5% since March, with further pain for sellers to come.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), says: “I suspect people will be fairly wary.”
He adds that while the easing of restrictions will unlock transactions already in the pipeline and encourage those who need to move for work or family reasons, most people will wait to see how their circumstances develop before buying.
High-end property agent Henry Pryor says his clients are looking for 20% discounts, though they are likely to agree on a figure nearer 10%.
“They dont know where prices are going to be at the end of the year and whether they will be in negative equity,” he says.
Rubinsohn says buyers have also found they may want to consider aspects of a property that were not so important three months ago.
“They might want to put a garden or balcony higher up their agenda, or put more time into considering the merits of city life versus something more rural,” he says.
“I am not sure we are able to make judgments about which way people are going to jump. It is too early to say. But there is certainly the potential for people to rethink what they want from their next home.”
Trends that were developing before the pandemic hit could be accelerated as the lockdown eases. If commercial properties become less attractive to employers following a shift to home working, a trend to convert empty offices into apartments could pick up pace.
Rubinsohn warns that this may not be good news for buyers after a report by academics at University College London for Rics found developers had taken the opportunity of weak planning rules to produce substandard homes that one critic dubbed “the slums of the future”.
Other trends could reverse. A drift to the city could come to an abrupt end as the prospect of rejoining the morning commuter crush loses its appeal. And the hollowing-out of town centre high streets could be turned around if the prospect of queuing at an out-of-town supermarket is tarnished and buying from local shops is seen as safer.
The promise of historically low interest rates for the next two years – and most likely a decade or more – could underpin this transition, but the route back to a more normal level of transactions will be slow.
Archer says: “Very low borrowing costs should also help matters, with the Bank of England unlikely to lift interest rates from 0.1% until well into 2021. Even so, we expect house price gains to be no more than 2-3% in 2021.”
Rubinsohn argues that the government will need to consider tax breaks or subsidies to kickstart the market before housebuilders consider limiting the supply of new homes further.
“Without help, and especially as unemployment increases, the housing market recovery is going to be slow. It will be a hard slog,” he says.